In principle, the accounting and valuation methods applied in the past were maintained. The material differences are explained below.

Intangible assets and property, plant and equipment were valued at cost of acquisition or production, less scheduled amortization and depreciation. Scheduled depreciation was recorded using the straight-line method of depreciation, based on the estimated useful life. Wherever it was possible or appropriate to show assets at a lower value, impairment losses were recorded.

Financial assets were also shown at the lower of cost or market value, whenever a sustained impairment in value was identified. Associated companies were valued at equity according to the book value method. Values were determined at the time of their initial inclusion in the consolidated financial statements. This did not result in any material effects in the year under report.

Inventories were capitalized at cost of acquisition or production; work in process and finished goods were carried at cost including an appropriate portion of material and production overhead. Adequate depreciation was recorded wherever market prices or the values determined were lower than the book values or where the salability of products and assets was impaired.

Accounts receivable and all other current assets were shown at their nominal value. Appropriate allowance was made for any specific bad debts identified. A general bad debt allowance was recorded to cover general credit risk.

Uncertain debts and potential losses from pending transactions were shown to an appropriate extent as accruals on the liabilities side.

In the 2005 business year, accruals for pensions and similar obligations were calculated according to the actuarial principles of IAS 19 and discounted to their present value for the first time throughout the Group. As a result of the amendment of IAS 19, the accruals for pensions rose by a total of EUR 28.8 million. Previously, the entry age normal method required under fiscal law was used to determine the accruals for pensions and similar obligations of German companies in the consolidation group.

Accruals for current taxes and for deferred taxes and other accruals provide appropriate cover of uncertain debts and potential losses from pending transactions. The item also comprises expense accruals, as well as deferred tax accruals taken from the individual financial statements. Liabilities are shown at the amount repayable.

Liabilities are shown at the amount repayable.

Accounts receivable and accounts payable in foreign currencies were shown at cost of acquisition or at the lower/higher currency exchange rate applicable on the balance sheet date. Bank balances denominated in foreign currency were converted at the bank selling rate on the balance sheet date.

It is extremely difficult to gauge the risk presented to our operational business by movements in exchange rates and interest rates. In order to minimize this risk, appropriate hedging activities were adopted, e.g. derivatives. Transactions are only concluded with banks whose creditworthiness is impeccable, and then in accordance with uniform guidelines and strict internal auditing processes. The involvement of these banks is restricted to securing the business transaction and the financial investment and financing processes involved.

Previously, the option detailed in Sec. 274, para. 2 HGB was used in the individual financial statements of the companies included in the consolidation group, with the effect that no deferred tax assets were shown. As of the 2005 business year, deferred taxes were recognized for the first time in accordance with GAS 10 “Deferred taxes in consolidated financial statements” and deferred tax assets and liabilities were determined for all timing differences between the taxation and balance sheet values. The deferred taxes were determined on the basis of the tax rates expected at the time of recognition. These are based on the regulations adopted at the balance sheet date. No deferred tax assets on tax loss carry forwards or tax credits were formed. In addition, deferred taxes were formed for the first time in accordance with GAS 10 on unrealized reserves disclosed in connection with the first consolidation.

The change in the accounting of deferred taxes had an effect of EUR 60.8 million on the Group’s opening balance sheet on January 1, 2005. The adjustment led to an increase in equity with no effect on profit. The recognition of deferred tax liabilities for the first time on unrealized gains disclosed in connection with the first consolidation also led to an increase of EUR 10.3 million in goodwill. No adjustment was made to the comparable figures of the previous year. If the corresponding accounting methods had been applied in the 2004 business year, there would have only been a slight change in the tax expense in 2004.

Conversion of currencies

The financial statements of the foreign subsidiaries which do not report in euro were converted as follows:

• Equity: Exchange rate at the time of acquisition or, alternatively, at the time of first consolidation
• Other items in the balance sheet, net income/loss for the year and depreciation: Exchange rate as of the balance sheet date
• Expenditure and income: Average exchange rate over the year

Exchange differences arising from the application of the current rate method have been netted in the development of fixed assets with the opening balances.

As in the past, any differences resulting from the conversion of items shown in the balance sheet into euro were offset against revenue reserves.